Thursday, June 18, 2009

One political issue that never seems to hit the headlines in New Zealand is the issue of national population control via immigration. I want to make a specific note on this because I believe that immigration is one of the most -if not the most- powerful levers our government possesses to control the wealth-structure of society, and more.

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New Zealand has a record of maintaining constant population growth through immigration, and this net growth has been accelerated over the last decade or so. So what are the economic consequences of this?

The immediate national effect of greater immigration is a greater number of people as a ratio to productive assets and infrastructure (public and privately owned). This in turn increases demand for jobs and material goods relative to the supply, until the developing supply catches up to demand*.

Likewise, employers are enabled to employ people for less pay (especially unskilled people) and also sell their products/services at a higher price. The market value of their productive infrastructure therefore increases because it is more profitable. However, of course, it is not more profitable because it is operationally more efficient, it is more profitable simply because labour is cheaper and the sale prices are higher.

If you crudely split society into two classes of 'owners' and 'workers', you can see that increasing immigration favours the owner class over workers. Understandably, every owner of capital wants their product to be in a condition of scarcity to the market. "Too much" immigration can and does achieve exactly that.

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To spell out the impact of immigration, we can model what would happen in New Zealand if we were to control immigration in a way so as to make the population permanently static in size.

The first industry to be impacted would be the construction industry. Their productive infrastructure is currently at a capacity to support historic levels of population growth. So, because the demand for new houses would rapidly decline, their industry would in turn be forced to recede and liquidate until it is only of the size necessary to, essentially, provide the services of replacement, refurbishment and maintenance only. This adjustment would be painful for the industry. However, there would soon be a natural moderate glut of housing, roading and other infrastructure which would mean cheap houses, less roading tax and cheaper electricity etc.

The market value of commercial and industrial industries would drop significantly because they would then not be so profitable, but they would only be less profitable because they can no longer charge high prices to the consumer. They would not actually be less productive, or at least not less productive in proportion to the remaining population.

On the employment side there would be more physical infrastructure relative to the available workers. Employers would in turn be forced to pay workers more to keep them, and likewise this will further reduce an employers profitability in conjunction with the fact that they cannot sell their products at prices so high.

The ultimate effect of a static population is clear. You achieve an effective wealth distribution amongst workers and at the owner classes expense. You do this by reducing the very relevance of material wealth by inducing a developing glut of material infrastructure. Indeed, you could quite easily make New Zealand universally prosperous simply by freezing immigration-induced population growth.

The complaints from the owner class would be acute to say the least, but the reality is you would increase the productivity of workers per capita and distribute the fruits of the infrastructure more evenly. Productivity per-capita will dictate the real level of prosperity regardless of the abstract monetary values placed on industrial and commercial infrastructure. Relating to prosperity, money is only a trade medium. It is the productivity level that counts with respect to functional material wealth.

Conclusion:

So what should New Zealand do with its immigration policy? Personally I do not support an elimination of population growth without substantial warning, so as to allow industry to prepare for the event so as to reduce unreasonable losses. Deliberately and unfairly eliminating or drastically reducing the market value of a given industry can be as unjust as deliberately inflating its value. However, I certainly do not agree with New Zealand's status quo either. Our immigration volumes are too high relative to our ability to achieve supply growth, and the effect of this is and has been towering house prices, poor relative wages, and alround exaggerated price inflation. Though a happy ownership class, of course.Socialism:

You would think that socialists who cry out for wealth distribution would be pushing hard for a reduction in population growth so as to achieve the effect that I have just described. Ironically the opposite is true, at least within New Zealand. Socialist leaning political parties within New Zealand (and this includes the National party, I believe) have increased immigration with all its anti wealth-distribution effects. Why? I can only speculate as to their ultimate motives, but what too much immigration too soon does is create the need for "Robin Hood" style public policy as we typically know it. It creates the very poverty class that socialists claim to want to remove, and likewise it leads to the introduction of intensive social welfare systems and a large supporting tax-and-subsidy cycle i.e. "the nanny state". The greater a governments tax-and-subsidy cycle, the greater their influence over a nation as they can and do likewise regulate how and when those tax funds will be spent.

Something to think about? As we can see, immigration issues go way beyond just the 'type' of people that we import. It is the quantity factor that is so important.International socialism:

Some advocates are interested in increased immigration for the sake of sharing a rich country's wealth with poor countries. Though helping out poor countries is commendable in my view, I do not believe that increasing immigration is the best way to achieve this.

I believe that much better results can be achieved with free trade, strategic technological investment, and the promotion of philanthropy. I do not believe that undermining the social structure of western societies will be the best method for international socialism in the long-term. I believe that the advantages that exaggerated immigration provides for poorer nations is trivial relative to the internal social costs for the more prosperous nations, due to the wealth imbalances that come with it.

*Government regulations can and often do aggressively inhibit supply development. Land zoning laws are a classic and serious example.

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I have included the following Audio by Gerald Celente. Gerald Celente believes that an anti-immigration focus (such as what I promote) will be a trend throughout the developed world in the years just ahead. To say, I certainly agree with Celente's fundamental ideas on where he believes the New Zealand economy should be focused, for the sake of its prosperity and overall security [as he indirectly expresses]. I personally believe that most countries, including New Zealand, would be best off if they focused on developing a high level of independence with respect to the essentials i.e. food, energy and housing etc. Compared to most nations, this is something that New Zealand thankfully already has, at least to a large degree.

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Note: Economies of scale:

People tend to believe that more people in a country will automatically mean better economies-of-scale. This is true, but only up to a point.

Firstly, economies-of-scale are radically different for different products and services. Economies-of-scale are vital for the production of cheap laptops for example, but not so much for hamburgers. There is a saturation point with size where you end up with no per-capita increase in production efficiency with greater production volumes. What's more, saturation points are themselves highly variable due to changing production technologies (and other).

So does New Zealand need more people to optimise the per-capita efficiency of its economy? Hardly. Firstly, New Zealand already enjoys a largely optimised economies-of-scale with its well developed trade links; in terms of production New Zealand is not really a 'small' isolated country. And due to its relatively small size, it can comfortably compete with other nations in more niche markets.

You don't have to have massive production volumes to achieve high per-capita incomes, you just have to trade and be more selective in what you do.

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The Great New Zealand Housing Disaster: Click on The Real Deal, below.

Why would you buy a home for $500k when you can build a new home for $200k at the city fringe? Answer: Because you can't build a home for $200k at the city fringe. Because the cost of land has been artificially inflated, and to the point of ridiculous. This is the heart of the reason why housing in New Zealand has been able to inflate to such extraordinary degrees. The supply response to increases in demand has been deliberately choked off. At base, this so-called complex issue really is that simple.